Outlook White Paper: Private
Internet Service Providers in India

This is a copyrighted
document, with both copyright and authorship residing with
the author, Anindo Ghosh, of New Delhi, India. This document is not
a commissioned article, and as such, no other individual or
organization can distribute or lay any claims to the use of
this document. Anindo Ghosh solely reserves all rights on the
use, further publication and distribution of this document.

This
document was originally written as an introduction to the
Private ISP scenario in India, for clients who had retained
the author as consultant for setting up ISPs in India. The
audience consisted primarily of potential investors with
little or no knowledge of the Internet and its technologies
and terminology. Hence some very basic terms are explained in
the footnotes. Further, as this
document predated the release of the official Internet policy
document, some points raised in this document may not hold
true. However in the main, this document is still fully
applicable to the Indian Internet scenario. All opinions and
value judgements are solely the authors personal viewpoint.
With this publication of the document on the Internet, it is
thrown open for criticism and discussion.

The recent directive by the
Government of India to permit operation of Internet services by
private Internet Service Providers (ISPs) in India has aroused a
lot of interest amongst various parties throughout the country.
In this light, the following white paper has been designed to
bring the various aspects of ISP privatization into perspective.
On one hand, certain misconceptions and fallacies are dispelled,
on the other hand, sectors of opportunity and feasible strategies
are mentioned. This document is not designed to be a
comprehensive project paper, only an introduction to the subject.
Detailed project papers would be developed for interested clients
on receipt of appropriate retainers and work orders.

Internet access in a sense came
into India in the early 90s. ERNet, a division of
Department of Electronics (DoE), and NICNet (Department of
Statistics) made the initial inroads in this field. Both ERNet
and NICNet are Government projects, but with very different
charters and growth histories.

The ERNet (Educational and
Research Network) project was designed to provide Internet
connectivity to the premier educational and research institutions
of India, while NICNet was assigned the provision of Internet
services primarily to Government departments and organizations.
Under the guidance of Dr. S. Ramakrishnan, Director, ERNet grew
from a low-bandwidth, unreliable, shell1 and UUCP2 based Internet service to become the first
to provide full TCP-IP3
access to dial-up
modem4 customers through SLIP5 accounts around 1993. This was followed by
an upgrade to a nationwide V-SAT6 network and passably high-reliability
services by 1996. The shaky technical skills of the network
management group at ERNet Delhi have perhaps been its weakest
point.

NICNet was designed to provide
V-SAT and dial-up Internet access primarily to Government
departments. It began with shell-only access, at 2400 BPS, but
now provides high speed TCP-IP access through 64 KBPS V-SAT
links. Technologies were also upgraded to follow current trends,
under the guidance of Dr. Sheshagri, Director. NICNet may not
quite match world ISP standards, but it is not too far behind.

ERNet and NICNet are thus
Indias first ISPs, though their operations have been
shackled by the restrictions put upon them by Government
regulations and policies of the Department of Telecom (DoT).
Despite this, they were doing quite well in providing the
essential Internet services to an Internet-starved India, until
the advent of VSNL Internet services and the restrictive
clampdown that followed.

Another provider of Internet
services that preceded VSNL is the Software Technology Parks of
India (STPI) Internet service. Again, this service was permitted
only for a restricted audience, the software exporters falling
under the STP scheme of the DoE. STPI has been providing high-end
Internet services through leased lines and dial-up links, in and
around several of the Parks, including Bangalore, Hyderabad and
NOIDA, through the respective SoftNET networks. Of these, the
NOIDA network is perhaps the most ambitious, the most
technologically sophisticated, and also the most complex ISP in
India. This network, titled the National Capital Region IP
Network (NCR-IP7),
reaches software exporters in and around New Delhi, Gurgaon, and
NOIDA. Connectivity is provided via CDMA and TDMA radio networks,
Ethernet LANs and dial-up lines. Currently dial-up access is only
available to the STPN network administrators due to VSNL-imposed
restrictions.

On 15th August 1995,
VSNL launched the Gateway Internet Access Service, for
providing public Internet access. Initially, DoT allowed VSNL the
license to operate this service only in the 4 metros. By the VSNL
charter, it is supposed to only provide international telecom
gateways, not end-user services. Thus the name "Gateway
Service" was used to cover up for direct service provision.

Starting with only dial-up shell
and PPP8
access in the 4 metros, VSNL followed with leased-line access to
subscribers, followed by the setting up of points of presence
(POP) in Bangalore and Pune. The DoT has turned a blind eye to
these license violations, and tacitly helped VSNL with post-facto
ad hoc permissions along the way.

VSNL has, since the inception of
GIAS, portrayed itself in the press as Indias only
legitimate ISP, while forcing many restrictions on the other ISPs
through DoT regulations and the telecom policy. The Telegraph Act
of 1885, a pre-independence British law, has been repeatedly
invoked by VSNL and interpreted to give itself extended powers
while forcing the other ISPs to curtail their operations.

The monopolistic practices of
VSNL, coupled with undoubtedly high investments to increase
service capabilities, have had two results:

VSNL has successfully erased
the existence of the older ISPs from public
consciousness, through a high level of PR, promotional
and marketing efforts.

It has established a level of
service that will be difficult for a new Private ISP to
match without extremely deep pockets and a willingness to
accept losses for a couple of years at least.

Facts to be kept in mind by
potential Private ISPs:

VSNL is not the only existing
ISP they will have to compete with.

VSNL and the DoT have a
history of changing rules to suit themselves

There is not yet any
effective appellate body for telecom related disputes
against VSNL or the DoT, though this is expected (not
definite yet) to change in the near future.

Any new player will be
entering the field to compete with VSNL infrastructure
already in place.

VSNL has a high spending
capacity for marketing and infrastructure investment that
is nearly impossible to match.

VSNL will defend its existing
areas of operation, both GIAS and international voice
telephony, which is threatened by Internet telephony.

Public awareness of VSNL GIAS
services is high, and establishing credibility will not
be easy for Private ISPs.

Availability and reliability
of dial-up telephone lines and terrestrial leased lines
are dependent on the local telephony agency such as MTNL.
Track records are not reassuring especially in non-metro
telecom circles.

Many new technologies like
Cable Internet are currently forbidden due to a
combination of Telecom and Broadcasting laws.

Non-metropolitan cities where
competition from other private ISPs as well as VSNL would
be less intense. Here marketing expenses would be lower,
and a market could be created through seminars and
workshops. Private ISPs entering at a later date would
have to contend with established loyalties. Primary
target audience would be dial-up customers.

Regions with high corporate
activity, such as parts of Haryana, Lucknow, Agra,
Ghaziabad, Goa, Kanpur, Jamshedpur, Nagpur, Chandigarh,
Amritsar, Dehradun et cetera. In these areas, it
would be easier to get sufficient leased line subscribers
from among research centers, private educational
institutions, corporate headquarters, major manufacturing
facilities and export houses, to make the initial set-up
viable and self-sustaining. Dial-up customers would
provide growth potential, with the backbone paid for by
leased line customers.

Tourist and resort areas:
Many premium hotels and resorts will require cyber clubs
with Email and surfing facilities, for which leased lines
are needed. Educating these potential customers through
seminars, and providing very reliable service quality can
capture these markets. Pricing for such clients can be
higher, thus ensuring lower risk, though with moderate
growth potential due to saturation. Clients would not
switch providers easily if quality is maintained.

Provision of wide range of
ancillary services: Due to Internet access being a recent
phenomenon, there is a dearth of related skills, such as
information research and retrieval from the Internet,
high-end technical support and consulting, and end-user
training for leveraging the Internet. This is especially
true of non-metropolitan areas. Further, small
cyber-clubs with trained personnel for the public to walk
in and use for Email and Web surfing, much like the
ubiquitous PCOs, would generate high revenue. Private
ISPs with such services as part of the initial offering
would gain high market share and customer loyalty.

Regions with poor telecom
infrastructure and high industrial density. These areas
are ideal for provision of radio-based leased line
Internet access, which bypasses terrestrial leased lines
and provides the highest reliability. High concentration
of automotive or steel goods manufacturers would be a
good starting point.

The key factors for success of a
Private ISP will be a technical edge, financial capability to
sustain losses over at least two years, high marketing and
promotional budgets, strategic alliances with ancillary service
providers, and lobbying power with the central and state
governments. These can be further examined further:

The technical edge:
The track record of ISPs in India, VSNL and the others
before it, has been badly marred by poor service quality.
Many Internet users would happily switch to a new private
ISP if given a guarantee of reliability. "95%
Uptime" and "Quality of
Service" (available bandwidth) guarantees,
while commonplace in the developed countries, are
non-existent in India so far. Serious Internet users,
especially those who depend upon it for business eagerly
await such guarantees. Once credibility is established,
pricing can even be higher than competitors. This
technical edge can only be established and maintained by
proactive, aggressive network design by experienced
consultants, coupled with a 24 hour Network Operations
Center manned by well-trained experts in all aspects of
ISP operation. Further, consultants must be available on
24-hour standby retainers. Close association with the
ERNet and NCR-IP ISPs has shown that customers are
extremely sensitive on issues of service outage and
unavailability of latest technologies.

Financial sustaining
power: The private airline industry in India makes a
suitable parallel to what is likely to happen with
Private ISPs. Many private airlines started up, but with
high levels of competition and price wars, coupled with
changing government regulations, several could not
continue sustaining losses. The recent closing down of
several of the new private airlines has made the market
much more lucrative for those airlines which survived, so
profit margins have shot up, and huge returns on
investments are expected in the next few years. The same
will happen with Private ISPs, since the scrapping of
license fees for Private ISPs will allow many Private
ISPs to set up services. Those that survive stand to gain
excellent financial returns in 3 to 4 years.

High marketing and
promotional budgets: The opening up of ISP services
without a license fee by the DoT will result in many
service providers in each region, and therefore
inevitable cannibalization of each others market share by
these providers. The only way to gain an edge in market
share is by developing a larger audience base through
regular Internet technology awareness seminars and
workshops, coupled with aggressive marketing, promotional
campaigns and schemes. Every potential customer converted
by a competitor would potentially recommend that
competitor to other customers too. This is especially
true in this industry as the newness of the field makes
any user with even a months experience a relative
expert for the novices.

Strategic alliances with
ancillary service providers: Potential customers will
look for additional services besides Internet access,
such as technical consulting, training, assistance in
seeking information from the Internet, Web site design
services, Internet advertising consultants, and
newsletters about Internet resources. It is nonviable for
the ISP to maintain full time staff for all these
services that would be required from time to time.
However, these services will be a source of additional
significant revenue, for the ISP and third party service
providers it is allied with. Within a year or so of
operations, revenue from this sector would be 25% or more
of total revenue.

Lobbying power with
central and state Governments: Again drawing a
parallel with the private airline industry in India, this
would be an important factor for any realistic ISP
business plan. Going by track records, the ground rules
for the industry will be changed repeatedly through
unilateral policy announcements by various related
Government departments. Like in the airlines, those
startups who are able to get prior knowledge of upcoming
changes in policy, and have the power to influence these
changes, will have better chance of survival as well as
the possibility of eliminating competition. This is a
reality in Indian Telecom that can not be ignored.

Budgetary estimates of cost can
only be made in very general terms until the exact terms of the
Private ISP policy are announced. There may be many hidden cost
factors that the DoT throws in. Further, the costing would vary
widely depending on the initial level of service offered, and
existing telecom infrastructure in the target region. The
ballpark budgetary figures for one year of operation are as
follows:

Interconnection of networks
is not permitted by the Telecom policy. Thus, if an ISP
has multiple points of presence, it is not permitted to
interconnect them directly, all connections must be via
VSNL. This is very expensive in terms of bandwidth
requirements, and requirement of multiple Network
Operations Centers (NOC)

Laws are in existence in
India that can be interpreted to read that transmission
of data with any form of encryption is illegal. Onus of
prevention is upon the service provider concerned.
However, much of current Internet technology, including
secure Web servers, PGP encrypted Email, and Virtual
Private Networks, are based on encryption. Prevention may
be technically impossible, and this could be used as
grounds for revocation of a Private ISP license.

A significant source of
revenue for VSNL comes from being the sole international
trunk carrier for voice calls. Revenues of between Rs.500
Crore and Rs.1500 Crore could be threatened over the next
few years if Internet telephony becomes popular.
Therefore, VSNL is bound to demand prevention of Internet
telephony by Private ISPs. Again, prevention may be
technically impossible, by the very nature of technology
used for voice communications on the Internet. This could
be used as grounds for strictures on ISPs.

Monitoring of Internet usage
may become a prerequisite in India. Though there is no
censorship of Internet content in existence in India at
the moment, such restrictions have been proposed by VSNL
and could come into force at any time. Such content
monitoring, for prevention of pornography et cetera would
raise the network management costs by at least 100%.
Further, the quality of service would automatically fall
with such restrictions.

Since all international trunk
bandwidth to the Internet will still be controlled by
VSNL, all Private ISPs will have to buy bandwidth from
VSNL. Prices to be fixed for this bandwidth by VSNL are
not yet known, and this could have significant impact on
the set up and operational costs of ISPs, as there is no
alternative provider available. Further, control of
upstream bandwidth by VSNL means that monopolistic action
by VSNL to protect its existing GIAS Internet service
markets is possible and likely. Further, competition
would be on a very uneven playing field, in any sectors
where VSNL is already an established service provider.

Availability of high quality
telephone and POTS exchange facility in a given target
region will play a significant role in quality of service
for ISPs. Those opting for their own fiber-optic
exchanges with 500 or more MTNL lines would definitely
have higher service quality, though at a high initial
investment. This investment would only start paying off
with at least 4000 heavy use subscribers.

Many other risk factors
exist, that are difficult to predict at this time. Among
them are changes in policy, possible high VSNL tariffs,
ceilings or floors on service pricing, restrictions on
type of use, permissions for operating cyber-clubs, and
so on.

The setting up of a Private ISP
has potential for high returns on investment, but with high risk
factors. The initial investments are significantly high despite
the Governments decision to scrap license fees. This field
will be intensely competitive, and only a few service providers
will survive the first two years of operation. Those that do
survive, stand to gain anywhere up to 70% ROI per annum over the
following years. However, the entire window of operation is not
more than a decade, as technologies like Iridium (low-orbit
satellites providing global public Internet access) will start
entering India with very low service tariffs.

A service that is not well
designed right from the planning stage will not be able to
survive, so the use of expert consultants, and well trained
personnel is critically important. Further, the service must be
designed to adopt new Internet technologies as early as possible,
regardless of cost. Resource planning should be done with buffer
capacity of 100% or more, to cope with bursts of growth. Local
connectivity options other than POTS, such as Radio, should be
given preference, so that the service is not at the mercy of the
weather and the telephone departments.

This document is an attempt to
reflect the ground realities in India, which are very different
from the book of rules that ISPs in other countries are subject
to. Foreknowledge of these realities will mark the difference
between success and failure for every Private ISP in India.

Internet access supporting only textual
interfaces, with Unix or Unix-like operating system
commands. Requires "logging in" to a Unix-type
user account, and then operating via textual commands or
text-based menu systems. Shell access does not use the
TCP-IP network protocols between the user (client) end
and the servers. Therefore, applications like Netscape,
NFS file sharing, and Internet telephony can not be used.

Transmission Control Protocol /
Internetworking Protocol, a whole suite of
networking protocols that form the basis of the Internet.
Often extended in meaning to cover the entire Internet
Protocol (IP) suite, including UDP and ICMP protocols, as
distinct from TCP. TCP-IP access is required for
operation of IP-dependent applications like Netscape,
Internet Explorer, mIRC, Internet telephony and video,
and many other modern applications.

As opposed to leased-line modems, this
device is connected between a computer or Data Terminal
Equipment and a conventional POTS analog telephone line.
Used to dial in to a corresponding modem at the service
provider, and connect to the Internet or other services
(e.g. INET X.25 network).

Very Small Aperture Terminal,
satellite-based digital communication system consisting
of 1.8 meter (usually) diameter satellite dishes
establishing point-to-point connections, often via a V-SAT
hub, a central switching system. Bandwidths can
be from 2400 BPS to 256 KBPS. Communication delay is
high, due to the two satellite hops between endpoints,
and hub latency.

This network was originally designed and
implemented by the author, in a consultant capacity, for
STP NOIDA. The project was executed, from
conceptualization to final implementation, between March
1996 and February 1996. (Reference contact:
Mr.P.S.Narotra, Director, STP NOIDA, Tel: +91 11 436
3108).

Point to Point Protocol,
currently among the most popular protocols used for
dial-up TCP-IP access. Variations like Multilink PPP are
supported by some ISPs, allowing use of multiple modems
for increased bandwidth.

Anindo
Ghosh has been a
consultant for large network design and implementation for
nearly a decade, and has been specializing in Internet
related network solutions for the last 3 years. His design
and implementation of the National Capital Region IP Network,
a project of the Software Technology Park, NOIDA, makes him
one of the few consultants in India with experience in design
of a modern ISP using leading edge technologies. The NCR-IP
Network uses Windows NT and Silicon Graphics servers, network
routers from CISCO and Network Dynamics, and communications
media including digital radio, Ethernet and dial-up modems.
The network connects the software export units in the
National Capital Region to the Internet, and hence has been
designed to keep pace with their high-end Internet access
requirements. The entire network was conceptualized,
designed, implemented and maintained during the initial 6
months, by the author. During this time, STP NOIDA personnel
were trained in the operation and management of the network,
and it is now fully operated by them.